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On 10 October 2024, the UK launched the Office of Trade Sanctions Implementation (OTSI), a new regulatory body whose creation was initially announced by the UK government in December 2023.
The creation of OTSI is underpinned by the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 (regulations) which marks a significant development in the country’s approach to enforcing trade sanctions.
In particular, the importance of OTSI lies in its role as a specialised body dedicated to civil enforcement on trade sanctions. OTSI sits within the Department of Business and Trade (DBT) and aims to strengthen enforcement by helping businesses comply with sanctions through guidance and online tools, and using their new civil enforcement powers.
The establishment of OTSI represents a significant shift in the UK’s approach to trade sanctions enforcement along with the current global trade sanctions landscape which remains complex and dynamic, particularly concerning Russia, Iran and the Middle East.
New powers
Civil enforcement
The Regulations empower the DBT (acting through OTSI) to implement its civil enforcement s to investigate suspected breaches in relation to:
- Providing or procuring sanctioned services.
- Moving, making available, or acquiring sanctioned goods outside the UK.
- Transferring, making available or acquiring sanctioned technology outside the UK.
- Providing ancillary services to the movement, making available or acquisition of sanctioned goods outside the UK.
- Providing services ancillary to the transfer, making available or acquisition of sanctioned technology outside the UK.
OTSI’s civil enforcement powers are in addition to, and separate from, His Majesty's Revenue and Custom’s (HMRC) existing criminal enforcement powers. HMRC will remain responsible for the enforcement of trade sanctions in other areas relating to the import and export of goods and transfer of technology.
Sanctioned trade service licence
OTSI is now responsible for a new service to issue licences that allow providing certain sanctioned trade services under relevant UK sanctions legislation. The sanctioned trade services covered by this licence are:
- Professional and business services (accounting, advertising, architectural, auditing business and management consulting, engineering, IT consultancy and design, legal advisory, public relations).
- Energy-related services.
- Infrastructure or tourism-related services to non-government-controlled Ukrainian territories.
- Interception or monitoring services.
- Mining, manufacturing or computer services.
- Ships or aircraft-related services.
The Export Control Joint Unit (ECJU), which is also part of the DBT, remains responsible for issuing licenses for the export of sanctioned goods and the provision of ancillary services related to the export of sanctioned goods.
Who does it apply to?
Those who may be subject to OTSI’s civil enforcement investigations include:
- Individuals and legal entities who are within, or undertake activities within, the UK’s territory.
- UK individuals and legal entities established under UK law, regardless of where in the world the breach takes place.
Breaches
Strict liability framework
OTSI will operate on a strict liability basis when enforcing trade sanctions. The Regulations (Regulation 6) require OTSI to ignore any defence that a person did not know and had no reasonable cause to suspect. As such, OTSI only needs to prove that a breach of the relevant trade sanctions has occurred as a factual matter to impose a monetary penalty.
In the case of a corporate breach, OTSI can impose separate monetary penalties on the legal entity and the officers who run it if the breach is either committed with the officer’s consent or involvement, or attributable to the officer’s neglect.
Penalties
OTSI has authority to impose significant monetary penalties for breach of trade sanctions. While the exact amount can vary based on the severity and nature of the breach, it can impose civil penalties up to the greater of £1 million or 50% of the value of the breach. A decision to impose a penalty can be appealed to the Upper Tribunal.
Disclosure
OTSI is expected to publish reports on its enforcement activities including investigation, and penalties imposed as well as trends in sanctions compliance. Although businesses will have access to more detailed information about trade sanctions enforcement, the publication of enforcement actions may have reputational implications for businesses found to be in breach of trade sanctions.
Information sharing
OTSI will be working closely with other parts of the government, supervisory bodies, regulators, and international partners to consider all reported cases and share relevant information.
OTSI reserves the right to refer the case to HMRC for criminal investigation, which can then refer the case to the Crown Prosecution Service for potential prosecution. It can also refer the case to other relevant regulators (e.g., Financial Conduct Authority, Companies House, Insolvency Service) if a person in breach is a regulated professional or business, UK registered company or company director.
OTSI is also granted power to request information from a person for the purpose of monitoring sanctions or investigating a suspected breach of sanctions regulations.
Mandatory reporting obligation for businesses
The Regulations introduced a mandatory reporting obligation in respect of trade sanctions that requires financial service providers, legal service providers (a firm or sole practitioner) and money service businesses (e.g. a currency exchange office) to report suspected breaches of trade sanctions to OTSI or HMRC according to the type of trade sanctions breaches.
Implications for businesses
The establishment of OTSI is expected to present a number of challenges to businesses, which can expect increased scrutiny with more focused and frequent inspections and audits related to trade sanctions compliance. In particular, with a dedicated civil enforcement body on trade sanctions, there is the potential for more stringent application of penalties and publicity for non-compliance.
This strict liability standard underscores the critical need for all businesses engaged in international trade to maintain vigilant trade sanctions compliance measures.
Nevertheless, the establishment of OTSI also offers an opportunity for clearer guidance and more transparent and streamlined trade sanctions compliance processes. As OTSI begins its operation, businesses should closely monitor activities in international trade and ensure that they have robust trade sanctions compliance programmes in place.
United Kingdom